As buy now, pay later loans become increasingly popular, it's important for consumers to understand the terms and conditions.

• Among U.S. consumers, buy now, pay later plans are the second most popular form of credit payment, according to NerdWallet.
• Sara Rathner, a travel and credit cards expert at NerdWallet, stated that it has become increasingly popular.

With the increasing popularity of buy now, pay later programs, some consumers are utilizing this payment method to manage their finances.

The Federal Reserve Bank of New York reports that Americans have a total debt of $17.5 trillion, with $1.12 trillion of that being on credit cards.

Phantom debt refers to buy now, pay later loans that are not reflected on credit reports.

Among U.S. consumers, short-term financing plans are the second most popular form of credit payment, according to a recent report by NerdWallet.

Consumers are carrying an average of $6,218 in credit card debt. Bankruptcy is now easier, according to Elizabeth Warren. Americans are using credit cards to buy groceries.

In the past 12 months, 66% of respondents in the U.S. used credit cards, while 25% utilized buy now, pay later (BNPL) services. The data was collected through a NerdWallet poll of 2,061 adults in early April.

Sara Rathner, a travel and credit cards expert at NerdWallet, stated that it has become increasingly popular.

Consumers can easily adopt BNPL programs because they do not require a credit check or an application process, making the use of these plans "seamless," she said.

In the past year, NerdWallet discovered that only a small percentage of consumers utilized cash advance apps (10%) or payday loans (6%).

With groceries and personal care items remaining expensive and borrowing costs remaining high, some shoppers are turning to BNPL to pay for essentials. In a NerdWallet survey, about 8% of adults used BNPL for necessities, while an equal share, 8%, expect to use BNPL for necessities in the coming 12 months.

Rathner stated that as the prices of necessary items have increased, people have found alternative ways to pay for them.

This type of line of credit has become a crucial source of financial support for many consumers, but modifications to the payment system are imminent.

A 'consumer-friendly change'

Federal protections for credit card use may soon apply to BNPL firms in the U.S.

On May 22, the Consumer Financial Protection Bureau declared that companies must offer customer protections such as refunds for returned products, investigate merchant disputes, and pause payments during such investigations. Additionally, they must provide bills with fee disclosures.

A credit card analyst at Bankrate.com, Ted Rossman, stated that this change is consumer-friendly.

According to an April Bankrate survey, about 18% of U.S. adults have encountered difficulties in returning items or obtaining a refund through a BNPL plan, which is a significant challenge for consumers.

Some BNPL plans already include provisions for returns if a consumer needs to make one.

"It depends on the provider," Rathner said.

LendingTree's chief credit analyst, Matt Schulz, stated that the BNPL space requires "some consistency and some predictability."

"For many years, buy now, pay later was a chaotic and unregulated industry," he stated, with each BNPL service having its own unique approach.

The CFPB announcement was responded to by Klarna with a statement stating that the company already offers such protections to its users.

Sebastian Siemiatkowski, CEO and co-founder of BNPL firm Klarna, advised putting some regulation on this to a certain extent in a May 24 interview on CNBC's Money Movers.

He added, "But they must consider how beneficial this product is for consumers' interests versus credit cards."

'Nobody should expect that to continue to fall'

Despite a decrease in Americans' credit card debt from $1.129 trillion in the fourth quarter of 2023 to $1.128 trillion in the same quarter of 2024, it remains the highest amount since 1999.

LendingTree's Schulz stated that it is unlikely for the trend to continue falling in the future.

Rossman expressed concern about the 44% of credit cardholders who carry balances from month to month, according to a Bankrate study.

Since late 2011, delinquencies have been at a new high, and 8% of surveyed cardholders have been in debt for a year or more, according to Bankrate data.

According to him, the industry interprets the data as a return to normal, even though lenders anticipated delinquencies to increase because they were "artificially low" during the Covid-19 pandemic due to federal stimulus income.

But it remains an issue at an individual level, said Rossman.

Parents of minor children and younger consumers are disproportionately affected by carrying credit card balances, with 56% of those earning $50,000 or less carrying a balance, compared to 38% of those earning $100,000 or more, according to Bankrate.

According to NerdWallet, a higher percentage of parents of minor children, 61%, have paid a late fee in the past year compared to adults without children, 28%.

In the past 12 months, 12% of Gen Z adults used BNPL to pay for necessities, while 11% expect to do so in the next year, according to NerdWallet.

It is crucial for consumers to comprehend the terms of BNPL financing before utilizing it, as experts predict more changes to BNPL structures in the near future.

It's important to research your rights before committing financially, as you always want to know what your options are.